How Do Apps Like Instacart Work?

Kate Abrosimova

Marketing Director at Yalantis, CMO and co-founder at Kaiiax

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Since we’ve been talking a lot about transportation apps recently, and because there is a constant appeal for them in the startup world, we decided to spend some more time talking about local delivery apps. When I say "local delivery app", I am talking about apps that connect local stores or restaurants with customers and handle the process of taking orders and product delivery. Let’s take a closer look at what these apps do and how they are developed.

Market overview

Amazon and Google are jumping into grocery and product delivery with their Amazon Prime and Shopping Express services. Amazon Prime uses a subscription model. You pay $99 per year and get unlimited deliveries of eligible items (there are 20 million of them) with no minimum order size. Amazon ships stuff by both ground and air using different means for the latter including a new delivery system Prime Air, which employs unmanned vehicles or drones. which can ship items in about 30 minutes. Using unmanned aircraft to deliver packages is a strategy still being tested, but will likely be put into service once the Federal Aviation Agency grants permission.

Taxi-booking apps are also looking into local delivery services. One of the delivery options Uber has been testing is a lunch takeout service, UberFresh. The idea is to deliver fast food from local restaurants in about 10 minutes or less. Menus and participating restaurants vary weekly, and there can only be a single item from each restaurant per week.

The delivery person is an Uber cab driver who brings you food for a flat $3 delivery fee regardless of the number of meals you order. Users just have to select the location and stand at the curbside waiting for the Uber taxi to arrive. UberFresh is currently covering Westside and the Beverly Hills/West Hollywood areas (you can check out a map of serviced areas here).

It is not like Uber doesn’t make enough money from their taxi booking app. This is just Uber exploring additional streams of revenue, just like any other billion dollar company would. After all, Uber changed its tagline from «Everyone’s private driver» to «Where lifestyle meets logistics» for a reason. According to New York Magazine’s Kevin Roose, the objective for Uber is to outgrow its car-service roots and become an enormous company providing all kinds of transportation and logistics services to people in the cities it serves. Uber is likely to be following in Amazon’s footsteps eventually.

Other services Uber has been rolling out include a NYC-based courier service UberRush which relies on messengers on foot or bike and competes with other delivery services like Postmates. The user usually pays between $15 and $30 per delivery.

The «rushers» keep 80% of the cost of each delivery and receive a complimentary iPhone, a portable battery to keep the GPS working, and an Uber messenger bag from the company. Startups like Postmates also provide their shoppers with iPhones stripped of external (non-Postmates) uses and extra batteries.

Earlier this year Uber launched a delivery service called Corner Store in Washington D.C. This service allowed users to get grocery items in just about 10 minutes. Uber has since expanded this service and changed its name to UberEssentials, offering users anything they might need from holiday essentials to women's beauty products. The user doesn’t need to pay for delivery and drivers don't accept tips.

Gett is another taxi app that offers on-demand delivery service. It joined forces with WunWun, a delivery app that allows users to get items from any store and restaurant for free. Gett taxi riders can prebook a car and request any product to be delivered at the pick-up location. The list of items delivered by Gett ranges from clothes straight from the dry cleaner to flowers and champagne on the way to a date. Gett has a flat pricing structure with an additional $5 added during peak hours and $5-15 during inclement weather and peak-holidays. The price a user pays for WunWun deliveries via Gett taxis is a flat $10.

Taxi companies challenge not only Amazon's and Google's product delivery services, but also local delivery startups like Instacart, WunWun, Postmates, and others. Even though the market seems pretty crowded, there are still a lot of areas without any real competition for local delivery business. If you are looking to enter one of them, you'll need to know a few things about local delivery app development.

Where does product data come from?

A local delivery app can either offer a set range of items, like UberEssentials, or any item from anywhere on demand, like London-based takeout service Jinn. The latter has iOS and Android apps which make it possible to order anything you want from any restaurant you specify.

Postmates handles the delivery of products from both, stores and restaurants and works in 14 cities across the US. When a user places an order, a local courier or a so called "hipster on wheels", will purchase and deliver the product from the closest restaurant or store where it is available in a given city.

DoorDash does local delivery from restaurants in about 45 minutes. It serves Silicon Valley, Los Angeles, Boston, and Chicago.

Instacart serves roughly the same cities as Postmates, but focuses more narrowly on users’ grocery shopping lists. How does Instacart work? It sends a personal shopper to the grocery store you point at, and the shopper delivers all you need in about an hour.

So where do all these guys get their data from?

If you have a warehouse it isn't a big problem to keep a list of your inventory on hand. Most startups, however, don’t have that. Apps that work with restaurants like Jinn, just have links to menus a user can access from the app. In this case startups need to establish partnerships with each restaurant they deliver from in order to get access to up-to-date menus and scrumptious food pics for the app.

However, if you target to develop an app like Instacart, consider that mobile apps which deal with product delivery from grocery stores has a much more difficult problem to solve. The best way to get data about what a store has in stock would be to tap directly into that store’s inventory system.

Instacart, for example, assembled the initial product databases for stores manually. They purchased every single product from the store and took photos of them in their office. Here is a cool speech by Apoorva Mehta, the CEO of Instacart, in which he shares his startup experience.

If you don’t feel like buying every single item available at the supermarket, you can look for product images and nutritiounal information posted on online grocery sellers' sites. Here are some you might want to take a look at:

Shotfarm is a free product image exchange platform that lets you connect to their product content network where thousands of manufacturers, distributors, retailers and publishers share their latest product attributes, images, and videos.

Gladson maintains a database of consumer packaged goods product information in the U.S. Their E-commerce Database captures over 150 attributes per product, delivering information for your site or mobile app.

The Klee Studio database allows you to access hundreds of thousands of CPG images in high definition.

Indix is building the world’s largest database of products for retailers, brands, and developers, with analytics and visualization for product managers.

How much money do local delivery apps make?

Every delivery app has a different pricing scheme. Usually you set a flat fee per delivery, part of which is kept by the messengers. A source of income for your delivery app can be the amount that you upcharge on an item, or the commission fee a restaurant has to pay for the delivery service. This strategy means you get bigger profit as your business expands.

For marketing purposes, though, you might want to make your delivery app completely free, with no upcharges, tips, or fees. You can always increase the fees later, when your delivery app has gotten some traction.

Apps like Uber do not charge a fee for delivery at all. When UberFresh launched in Santa Monica, users didn't have to pay fees or tips (only $12 for the meal). Now, however, there is a $3 flat fee per delivery.

WunWun's delivery app is free and users only pay for the product itself. At the same time the service encourages users to tip the messengers, who they call helpers. WunWun claims there is no difference between the retail price of an item and the price listed for it on the app.

Jinn’s courier will deliver an order in under an hour for a £5.95 delivery fee plus 10 percent of the purchase. In an interview with TechCrunch Jinn’s co-founder Leon Herrera says an average Jinn user places an order every 10 days or so. On average, their users have spent £150 using the service.

Postmates pricing starts at $5, and is determined by the distance of the delivery.

Instacart offers a free first delivery (a cool promotion), but every delivery thereafter will cost a user $3.99 and up.

DoorDash supports ApplePay and has a flat $6 fee. Prices may vary between what you pay in restaurants and what you pay for delivery. Merchants affiliated with the DoorDash network have to pay a commission fee to help cover the costs of the company's delivery fleet. That’s why they may raise the prices on certain menu items.

Sometimes menus that restaurants post online get outdated, showing inaccurate prices or dishes that are no longer offered. It's important for delivery apps to make sure every item listed is in stock and has the correct price tag.

In summary, local delivery app development may seem like a challenge given the particularities of a two-sided marketplace where demand and supply can fluctuate and need to be scaled at the same time. However, if you concentrate on developing a mobile app for a small underserved marketplace, you have a chance to scale the business faster and see amazing results.

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